tv Prime Interest RT May 21, 2013 11:00pm-11:31pm EDT
good afternoon to welcome the prime enjoy as time perry and boring reporting and washington d.c. here's the stories that i've been looking at today. jamie is safe america's mayor had a leader of j.p. morgan chase has retained his role as chairman of the board is rumored some of the other board member board members will soon be departing but for now the two big to fail heads are breathing a sigh of relief as this prophesied war was seen by some as a proxy on the entire industry if your fingers crossed the other hand. if you feel bad that was the u.s. hitting the debt ceiling over the weekend this is no longer a front page or even page six news event is under market will event went largely unnoticed but not by the treasury which now uses its arsenal of tools to rob peter
to pay paul reminds us of. he's so fond of talking about you know the one that's going to help and rein in price inflation and fifteen minutes later in the so i'm going to talk about the debt ceiling in monetary madness with authors michael penned and mark in the land. and the senate tried to take a bite out of tim cook this morning but the apple c.e.o. didn't flinch up there getting police with accusations of tax dodging he said there's no tax of thing going on but senators were quick to praise apple and its technological marvels but they weren't so patient with mr cook nonetheless he was quick to point out that the next match will be made in taxes certainly it won't be made by its profitable ira subsidiaries which has no employees i was at the hearing and i'll bring you a full report in the duel but for now let's get to what's in your prime interest.
barely a day goes by that we don't hear about the impending debt crisis much pixels have been split on the subject and we wouldn't have wasted the opportunity today to discuss the matter with an institutional money managers perspective what happens when interest rates rise and what is the fed's exit strategy from unprecedented digital money printing our producer bob inglis and i talked earlier with mark melendez editor of an a correlated investment dot com and asked him about the debt crisis and how he is
back said to play out when the cost of borrowing becomes much much higher. that's exactly the point terry and very observation of you here's the bottom line i think that there will be a crash before the fed can exit disposition there are a couple reasons for that number one people who are tracking the debt crisis know with concern what happens when interest rates start to rise if there's just a seven tenth's rise in interest rates you're going to see one hundred billion dollars per year annualized to the to pay to deficit it starts to get ugly i'm in particularly and i'm going to use this word when unfunded liabilities are considered close to five hundred trillion in what was at one point considered to siskel gap which magically sort of disappeared from the c.e.o.'s budget projections so i think we're in for some very interesting times again ahead well mark i'd like
to follow up on your use of the term unfunded liabilities. is are you describing that with medicare or social security pensions because there is some controversy over exactly how that that phrase is used especially when it comes to things like social security and medicare which technically was can be changed taxes can be raised etc. ok laws can be changed taxes can be raised first off yes bob i am too rackley talking about so secure to care a lot of the senior expenses that were there was money that was supposed to go into a trust fund guess what the trust fund is empty just close to five hundred trillion dollars of unfunded liabilities that are going to hit the balance sheet you don't hear paul krugman or the mitt the coin crowd talking about that. though they don't let's move on to the federal reserve and you talked about the impact of rising interest rates the fed has a lot of exposure to and they've kept
a set near zero interest rates for four and a half years and going up the balance sheet to three trillion dollars how do. they create them selves from this without serious market disruptions is that even possible to come here you know but explain what's going to happen here ok i don't think it is possible i hope for the best on this i really do i hope the fed can get out of it but quite frankly the fed seems as out of control to me as is the department of justice currently there they are engaging in activities that no one has seen previously and you know this becoming fifty percent buyer along the yield curve price discovery is one of the key components of a free market and the fed has come in and they've eliminated the price discovery this is absurd and right now i think what's going to happen is when this ban day gets peeled off it's going to come off and it's going to stick it's going to hurt and people want to talk you know about it deck rice's crash looking for different types of debt crisis crashes i have held to the view that it's going to occur along
the yield curve first but the first told the last i interviewed someone who isn't noted interest rate player and he said that it's probably going to happen in the former currency devaluations first so the lot of ways that we're looking at debt crisis crashes and modeling but i've got to tell you if something isn't done the modeling just gets much worse and much worse when the federal reserve seems pretty confident that they have the tools that they need to read on any bank that could be possible do you think the fed is expecting another financial panic and do you think they're factory any worse than what we saw in two thousand and. i think quite frankly a debt crisis crash could be worse than two thousand and eight if particularly if there's no confidence and what you have to understand is a debt crisis crash is a crash of confidence and look in the depression there was a scarcity of money the modeling i've looked at points to the fact in a debt crisis crash there's plenty of money but that money is worthless and do
these are the situations we want to avoid and these are. the things that as risk managers and financial fiduciary is we have a responsibility to understand i don't know the future and no one does know the future but i can tell you just looking at it logically and looking at the unusual historic changes that are right now i think there's a fair amount of underlying risk long term short term i expect the stock market to continue to rise as stimulus which builds an artificial foundation is underneath the market but i think as soon as the fed starts to lift that stimulus done we're going to start to see some problems and we're particularly going to see problems once they start to unload their absolutely historic balance sheet and then that is kind of the point here is that if we have another financial crisis it's going to be of a different character necessarily because in two thousand and eight the fed was easing it was on the it was on the downswing and then this time it has to extricate itself
from a three trillion dollars balance sheet expansion. i don't know how they're going to do it but you see bernanke is possibly leaving next year and he says he's not going to be a jackson hole this august as a sign that maybe the rat is leaving the ship. and you know it's funny you say that because that's how i interpreted the jackson hole we're in the us well yes exactly but look there are there are not easy solutions and i also think anyone thinks they're easy solutions you know bob you and i had conversations about charlie evans and i'm watching this guy and i think he's in search of a way to get out of this quantitative easing i don't think they have answers i think they're playing this trade as they go and as someone who observes professional trades this looks out of control to me i don't see risk management i don't see them even talking about risk in the proper framework as you know bob i had the opportunity to ask charlie evans about when i was one i want to do this and
acknowledge the rest i want to interrupt you there because we actually have a clip from that and we're going to fast. gordon a second. and i think you asked a question about systemic risk and here's what he had to say this is charles robinson. if in fact we were allowed to do enough of this and we had to start raising interest rates of putting in place more financial restrictive notice because of this frothiness then i don't really want to stop and think about why do we have frothiness in a world where unemployment is too high and inflation is too low because that might speak to the financial sector having. a whole collection of financial products that are problematic for the well functioning of the u.s. economy so and mark what our reaction. reaction is problematic financial products that he's talking about would you say that we're already in the hypothetical situation that he's describing exactly look underlying europe and
underlined the u.s. are over the counter debt risks that haven't really been publicly addressed as bob as you know i've had conversations with people to see f.t.c. this is a problem and it's but i have to see the nice news about this if anything what you have and i initially i had discussed the issue with a commissioner to see f.t.c. and i both know i'm referring to i haven't followed up on that i'm not a part of the c. f.t.c. i was just discussing outlining the travel that same problem has been outlined to the chicago said and the fed doesn't really have a very good track record when given warnings they were given no warning in two thousand and seven as to as to what underlies the problems and essentially what happened is two thousand and eight was a derivative some closure let's just put it bluntly that was all about to reduce. well you talk with heads by managers and commodity poor operator is quite
a bed and what are they doing in response to what the fed has been saying and doing three. well. i work in an industry of risk management ok so we don't know what the future is no one to us but a portion of a portfolio should be dedicated towards assets that are not dependent on the performance driver of economics supply and demand so a lot of people just look at probabilities in this industry and there are different types of crash scenarios that play out the worst type of crash scenario is the sudden flash crash in the managed futures industry which i'm intimately familiar with that industry typically has benefited during periods of stock market crisis and stock market weakness but no one's going to benefit from a flash crash well that's under time yeah and that's one of the important points and we saw this in the financial crisis on certain days post lehman right after
that in may sixth the date of the actual flash crash when all investment seemed to be either going straight up or straight down all in lockstep in these panics of the oreos is there any refuge is there any uncorrelated investment i know that's one of your things. like it is one of my schemes yes there are uncorrelated investments and and modeling and investment during crisis is the key lot of times you hear people say why have a diversified portfolio because i'm in the asia in the stock market or i'm in europe in the stock market in the united states from different sectors during crisis that all correlates to want and really there's there are a number of investments that have different correlations during crisis there are certain investments that have very interesting correlations tree rising interest rate environments and that's what investors start to need to be looking about it's not a stock centric world there is much more to the stock market there's much more to invest in the stock market that's the bottom line i was mark mellon at. editor of
uncorrelated investments dot com up next i will further discuss about a coming debt crisis with michael pentode the president and founder of hendo portfolio strategies and the author of the coming bond market collapse then prime interest producer bob inglis and i will talk about apple c.e.o. a tempo appearance on the hill today stating. let me let me are going to let me ask you a question. here on this network which we're not in the bay we are a night show. believed to be the site of the space thing there is again here in the situation where b. and i don't even talk about the surveillance me.
today the president of the federal reserve bank of new york william dudley called for the fed to update its thinking regarding how it plans to wind down large scale asset purchases and this comes after several fed governors have called for a reduction in the quantitative easing program now dudley didn't say whether or not he was in favor of continuing monetary stimulus and the big question still remains how much longer can the low interest rates last or earlier i talked to michael pentode president and founder of the strategies and author of the book the coming collapse in the bond market i asked him about the fed's near zero interest rate policy and he explained why he thinks the bond market is going to collapse. so i wrote a book about it and when i wrote the book i said to myself should i really be writing a book about the coming bond market collapse when it seems to be self-evident it should be pedestrian common knowledge but it seems like everywhere i go people have
become less and less choosing to bubbles i told everybody the nasdaq was in a bubble in one thousand nine hundred nine i sold almost march of two thousand i wrote a very extensive commentary about the housing bubble in two thousand and five i was vilified by the vilified and excoriated everywhere i went and now today i wrote a book about something which should be evidence that the us debt market is the biggest bubble in american history and yet no one believes me it is the most overpriced over owned oversupplied market that we have ever seen before and when it pops it will devastate the american economy so are you shorting bonds and i am i am shorting bones but if you're betting on rising yields then you know where we are right now you're not necessarily making money how you're managing you how are you managing. well i sure i shorted bonds i shorted the lehman twenty year plus
treasury i shorted when they were subs two percent some about even but the next big move in bond yields will be a lot higher and you have to understand some of the metrics behind this first of all if you look at the yield on the ten year note i would say have we have a graph of that was let's take that out ok and. you know having tenia. so if you go back to one thousand nine hundred seventy the yield on the ten year is five hundred fifty basis points five and a half percentage points below its forty year average think about that then you have to think about all of the trillions of dollars that have flooded into the bond market because well you can trust stocks anymore and you can trust real estate anymore so everybody trusts uncle sam we know he'll never default on its debt just inflated away don't worry about so it's also the most oversupplied market
look look at the increase in publicly traded debt it's up one hundred forty percent seven trillion dollars in five years now why would a what makes you want to buy a bond it's the credit risk of the nation the currency risk of the nation and the inflation risk of the nation all of those are flashing bright red and yet thanks to the fed mostly and a quest and public that really is setting themselves up to be slaughtered once again everybody wants to own bonds it's going to mean revert like everything else does this couldn't even more than read mean revert could much higher than the average of seven point three percent going back since one thousand seven hundred think about what that's going to do with the to the real estate market to the stock market to consumer debt levels and to debt service payments on our national debt ok new reasonably predict when they're going to go back up i do. in the book i predict two thousand and fifteen and of that two thousand and fifteen
two thousand and sixteen because i think even if the federal reserve says you know what i'm going to try to maintain and levitate the consumption bubble on the part of the american consumer so i don't really want to start pricking the bubble myself that i created after having interest rates at zero percent for a set of in years and just just to backtrack a second we had interest rates at one percent from two thousand and three summer of two thousand and three to summer of two thousand and four which engendered the housing bubble we're going to have interest rates at zero percent for a seven years so if the federal reserve doesn't really want to prick its own bubble that it created then the free market will do it just like it did in greece ireland portugal italy and spain where people have been saying for years that interest rates are going to rise this year i mean what's different this year well i didn't say they're going to rise this year and i haven't been saying it for years my book came out two weeks ago i'm on record saying the end of two thousand and six fifteen two thousand and sixteen that's when debt service payments will be about thirty
forty percent of our total revenue and when that's the case i think our international credit creditors which own half of our debt start to say i can no longer tolerate getting such a negative real interest rate and once it ends then it doesn't end with a trumpet blast it doesn't foreshadow it's popping just put up a chart of the greek two year note with a greek ten year note you'll see it bouncing along a sub five percent for year after year after year and then the a sudden you hit that epiphany and within a year you're at forty percent and you want to know what. c. you think you're going to also call for a balanced budget amendment crags i do i would that be lovely at least how about that how about this how about we grow our deficits at least commensurate with the growth rate in nominal g.d.p. so we don't expand our debt to g.d.p. ratio. and that was michael pentode the president and founder of portfolio
strategies and author of the coming bond market collapse. and it's time for the daily do all joining me as i mentioned. yes and you've been busy today haven't you i've been running around crazy all over the sea and what did you see well this morning i went to the senate permanent subcommittee on investigation syria an office chair offshore profit shifting and the u.s. tax code is included the witness to apple c.e.o. tim cook and as i understand there were three panels of witnesses on the first panel were two professors j. richard harvey from villanova university school of law and stephen ysaye from
harvard law they both broke down apple's accounting strategies that it used to minimize its tax exposure and as we discovered the tools that apple is using are pretty clever. yes senator carl levin who's the chairman of the committee he had this to say about what apple is doing. with the holy grail of tax avoidance i'm sure corporations that are user not for tax purposes resident anywhere you need. so is he calling in the knights templar what's the solution for finding the holy grail or i guess overcoming it here well the offshore corporations that he's referring to they have no tax residence which is why he calls them ghost companies they literally exist nowhere so they don't exist anywhere but they must operate from somewhere or do something somewhere. a oh i was in the apple operations entered. soley owned by apple but it was incorporated in
ireland now ireland has their tax laws are if a company is not managed and controlled in the higher line than is not considered a tax resident how does one have to pay taxes but here is where the loophole comes in and the us if a company is based a company's tax is based on where it's incorporated controlled so why is managed and controlled in the united states but it was incorporated in ireland so it's a ghost company that has no physical presence or of. its finances are handled in nevada which is a state with no income tax by braeburn capital and its bank account is located in new york all right so we have nevada new york ireland reminds us of the financial crisis in two thousand and eight where you have these luxembourg based icelandic bankers making swiss franc denominated loans to your informers course that worked out well but what's going on here without well i mean we're talking about a company who's paying
a lot of taxes anyways but there's just minimising their tax exposure so it's not i mean i wouldn't juxtapose it to the foreclosure crisis we had in two thousand and eight and they're just doing this complicated stuff in a different pressure. and it's actually working for them they're making a lot of money off of they have their own hedge fund is one of the largest in the world will think about how much bigger they could be if they didn't have to deal with our complicated tax code i understand and i'm not criticizing them ok i just think it's really complicated but it gives you more profit on it because we also have a which is apple sales international that holds apple's intellectual property rights of europe and some other countries as managed and controlled in the u.s. but it was incorporated in ireland it's not a tax resident of either country is paid some a tax is a very little it's ireland and then we also have the apple operations in europe which operates the same way and one of the professors from the first panel when they read apple's task testimony. that said they don't use any tags get makes the
guys of the almost fell out of his chair i'm about to fall out of my chair right now so how much more do we have to go on this whole apple might have you know some clever ways to get around the tax code but sam cooke made a very good point that apple is one of if not the largest corporate income tax payer in the united states in two thousand and twelve apple paid six billion dollars to the u.s. treasury their effective tax cash rate was thirty point five percent and they also said that their car sharing agreement with their four subsidiaries is totally legal and audited by the u.s. ok well rand paul had some interesting things to say today didn't he was one of the more flamboyant characters there and he was being countered by carl levin anything anything interesting that he might have said when he went on a rant he said that congress and apologize to apple for making their life so complicated maybe you showing them and then apple should not apologize a congress which is somewhat of what they were doing on the hill today well looks like we only have time for
a few seconds we were going to talk about bill dudley in an important speech that he gave today with respect to financial policy in the u.s. and comparing it to japan so it looks like we'll get to that tomorrow but just a brief recap she's basically saying that we didn't do enough before or japan didn't do enough powerline and we haven't done enough but we're doing it now maybe and on that note we'll just have to continue it tomorrow so just keep printing and keep printing printing pushing on a string exactly where we go. nowhere. things up. it's been a day of crisis and resolution on prime interest tim cook entered. lion's den and
emerge with his head held high and jamie diamond in toast is retained chairman hood tonight over robo signed a foreclosure affair but the u.s. and its developed counterparts may not have been fairing so well as debt begets debt it's a crisis of sorts bill w. from the new york fed tried to teach us a lesson about japan saying they just don't print enough. but they are they are now so no worries right or wrong we're going to we're not making any predictions on this but we'll keep you updated on what the world prime interest adverse unfolds and that's all we have for today things are tuning and make sure you follow us on facebook at facebook dot com prime interest and from everyone at prime interest i'm sorry i'm boring but break.
primarily it's to allow the crops to drink poison. herbicide. eighty five percent of all the g.m. crops are sold with the earlier side that it's designed to not to die from. so rolled up ready soil is designed not to die from around the earth as genetic engineering is on the coat tail of conventional and culture that is characterized by the proliferation of agro chemicals fertilizers pesticides herbicides fungicides all of these chemicals hobbs. costs on the energy production they have cost in environmental cleanup this is self-propagating genetic pollution we have new technology today to fully clean up the damage gene pool maybe we will in the future but we're not feeding the products of it with science to the entire population and releasing me to the environment where they can never be really.